The Real Reason M&A Deals Fail: Take a Closer Look

It’s ironic. Global merger and acquisition (M&A) activity continues to climb— yet most M&A deals continue to fail. How many times do you hear of a company being acquired only to never hear of it again, or seeing it sold off as an asset to another company within a few years?

Are corporate strategists eternal optimists, or just slow learners?

Neither. But they continue to make multi-billion-dollar decisions without complete and accurate information about the IT assets, business processes, operational practices, and data of the acquisition target. They lack transparency.

How can you arrive at a fair acquisition price without complete, consistent, or accurate information about the assets? In divestiture situations, how can you exceed book value without hard data that supports higher valuations?

Several customers have asked us if service management could help them be more successful with their mergers, acquisitions or divestitures. So we put our experts on the case and learned that improving transparency will increase business value, speed integration and make better decisions. In our new Point of View we detail five actions you can take to overcome the “transparency gap”—the difference between the information that’s needed and the information that’s actually available to M&A teams.

1) Include IT in M&A planning. Many executives blame high M&A failures rates on the complexity of IT integration. According to a 2015 Deloitte study, 60% of executives considered a recent M&A transaction in their firm to be “very unsuccessful” to “somewhat unsuccessful” in terms of the post-merger integration. (Deloitte, “2015 M&A Trends Report,” 2015.) It’s no secret that merging systems and data, rationalizing applications, achieving compliance with security and government regulations can be time-consuming and expensive. But one key element is often overlooked: in many cases IT was not apprised of the M&A or divestiture plans until after the deal was already in place.
Make sure IT a full and active participant in every stage of M&A activities: due diligence and integration planning as well as the actual integration. In the words of David Sternberg, a specialist leader at Deloitte Consulting, “start by coordinating a team of practitioners familiar with their own company’s capabilities, current technology road map, development efforts, and likely near-term technology investments.” (CIO Insights and Analysis from Deloitte, as printed in the Wall Street Journal, August 18, 2016.)

2) Unify your own company’s IT management information. When everyone in your company works from a single system of record—one authoritative source of management information—you can ensure the accuracy of your data about IT assets. Many companies try to maintain multiple systems, leading to complex replication, inaccuracy and lack of confidence. Once IT can trust the data about its own assets, IT can supply reliable data to M&A teams.

3) Implement industry standards and best practices. When you standardize on ITIL (Information Technology Infrastructure Library) best practices, or any other industry frameworks such as IT4IT or COBIT, you can provide better visibility into all conformant processes and infrastructure through your single system of record. This in turn makes it possible to consolidate tools and legacy systems, integrate data from multiple sources, and automate processes. It also facilitates your efforts to identify and remediate compliance problems. According to CSO.com, 70% of acquisition targets had compliance issues, and half of them lacked comprehensive data security architectures. (CSO.com, “M&A Due Diligence Often Reveals Deal-Breaking Cybersecurity Issues,” August 2016.) With extensive and consistent use of best practices you have better visibility into where the issues are.

4) Think in terms of service management, not just asset management. IT supplies services, not just plumbing. By focusing on IT service management rather than asset management—which means accounting for how IT assets are used in service delivery—you can increase transparency into every business process served by IT. By modernizing your approach to IT service management, you serve a more strategic role to the business during critical junctions such as the merger with or acquisition of another company.

5) Expand IT service management beyond IT. The same service management perspective and best practices you bring to IT can be applied to every business process across your enterprise, including security, customer service, human resources, finance, marketing, facilities, legal, and so on. That means the same level of transparency you brought to IT can translate into the higher enterprise-wide transparency that makes M&A or divestiture transactions successful. “Without integration of supporting and operational process applications (e.g., HR, finance, CRM, ERP, sales, marketing) within the entire organization, errors and replications are inevitable,” according to Financierworldwide.com. (Financierworldwide.com, February 2015.)

In short, transparency enables IT to do much more than “integrate” the buyer and the acquired. It positions IT to play a strategic role in M&A success by accelerating M&A transactions, improving asset valuations, and influencing go/no-go decisions about M&A deals.

Dave Wright

Dave Wright joined in December 2011 and currently serves as ServiceNow’s Chief Strategy Officer. Prior to joining ServiceNow, Wright spent over six years with VMware, Inc. as Vice President of Technical Services for EMEA. From 2003 to 2005 Wright headed up the technical division for Northern and Southern Europe at Mercury Interactive. Prior to that he spent six years at Peregrine Systems, Inc., where he held a variety of senior technical and marketing positions. Wright has also worked for Boole & Babbage, Inc. and Candle Services (later acquired by IBM).